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RealTime IT News

Paper or Plastic?

Webvan pulled its squeaky wheeled shopping cart up alongside HomeGrocer Monday, before double-bagging its rival and heading to the check-out counter to the tune of 1.2 billion bananas. Actually, it would be more appropriate to say Webvan stuffed its rival down the front of its pants and strolled out the front door with a steal.

After a March debut at $12 a pop, HomeGrocer looked ready to make a splash amongst a packed field of me-too competitors in the last-miler space. Things couldn't have smelled rosier by the time the first truck rolled off the docks, with the start-up backed by the blue chip VC house of Kleiner Perkins and Morgan Stanley serving as master of ceremonies in a charmed IPO. Even the wild and crazy Jeff Bezos handed over the keys to his Volvo for a spin behind the wheel of one of those familiar peachy delivery vans.

But HomeGrocer's chubby 22 million share offering could never quite squeeze its big behind past the frozen food aisle with armchair investors. The company's share price couldn't manage to command more than a couple of dollars premium from the get-go, and things just headed downhill from there.

The newcomer's philosophy was largely the same as its Amazonian benefactor. Spend it while you got it. Burning through a gaudy $40 million on respectable sales of $20 million in its latest quarter, the e-grocer looked like a chip off the old block. And there was plenty of green stuff to go around. With a quarter billion dollars in its post-IPO war chest, HomeGrocer slowly carved its initials on a handful of Birkenstock markets from Seattle to SoCal.

Ironically, HomeGrocer's rival-turned-suitor made less and lost more in its latest quarter. Additionally, Webvan boasts scant coverage of only San Francisco and Atlanta. But HomeGrocer's most ambitious Manifest Destiny was still chalk dust on the corner office blackboard when Webvan strolled up. Slated for Atlanta expansion by the second quarter, HomeGrocer may have seen sunnier skies ahead with an ally in Webvan. Given the chunk of change that goes into building a single fulfillment center, going head-to-head in a new market was counterproductive for both players, in light of sagging investor confidence for both online grocers.

Consolidation was already underway with Safeway's April GroceryWorks.com land-grab, and Royal Ahold's recent Peapod bailout. A merger deal between the two heaviest hitters is just plain good business acumen. At a crucial time of hyper-expansion and brand building, the cost-savings and little overlap between HomeGrocer and Webvan make this an ideal marriage in the e-grocer space.

Some retail investors are likely to be unhappy with the scant 15% premium dished out for HomeGrocer, but beggars can't be choosers. A year from now, brick-and-mortar grocery giants will roll out their own delivery services; and there won't be much wiggle room for a bevy of dot-com infighting. Now's the time to circle the wagons, because the real competition hasn't yet begun.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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